Published in Mint on Dec 14 2016.
Online term insurance policies are seeing a lot of innovation. Apart from breaking the sum assured into periodic payments for a beneficiary upon the death of the policyholder, IDBI Federal Life Insurance Co. Ltd’s iSurance Flexi Term Insurance Plan also offers to pay a portion of the sum assured upon contracting a terminal illness.
The plan offers four options. The first is the lump sum payment with a conversion option. If you choose this option and the sum assured is Rs1 crore or less, the policy pays a percentage of the sum assured if you contract any of the specified terminal illnesses and then terminates.
The policy specifies three illnesses: cancer, heart attack and stroke of defined severity. For cancer, the policy pays 71% of the sum assured whereas for the other two, it pays 50% of the sum assured before terminating.
“Conversion is optional and can be exercised upon contracting the terminal illness. But the option of conversion is not available during the last 5 years of the policy term or after 65 years of age,” said Karthik Raman, chief marketing officer, head-products and strategy, IDBI Federal Life.
“This policy covers terminal illnesses which, with the advancement of technology, have a chance of recovery unlike other plans,” he added.
If sum assured is in excess of Rs1 crore, then upon choosing conversion, the policy will pay the amount—as a pre-defined percentage of Rs1 crore—and the policy will continue to remain active.
The sum assured in this case will reduce to the balance that’s in excess of Rs1 crore. So, if you chose Rs3 crore as sum assured then after paying 71% or 50% of the first Rs1 crore, the policy will continue with the reduced sum assured of Rs2 crore.
The insurer will recalibrate your premiums for the reduced sum assured.
Kapil Mehta, co-founder, SecureNow.in, offers a word of caution. “I am uncertain about the usefulness of the convertibility feature because the number of diseases is restricted and there are caveats. The idea of paying a part of the sum assured upon a critical illness is good and complements a health insurance plan, but in this case, if the sum assured is up to Rs1 crore, the policy terminates after conversion whereas the policyholder paid premiums for the entire sum assured,” he said.
The other three options break up the lump sum into periodic payouts. Conversion is not available under these options. The fixed monthly income benefit breaks up the entire sum assured into monthly benefit spread over 15 years. The total payout to the nominee works out to 108% of the sum assured. So, for a sum assured of Rs1 crore, the monthly instalment will be 0.6% of the sum assured or Rs60,000.
The lump sum plus monthly option gives your nominee 10% of the sum assured as lump sum and the remaining as monthly instalments spread over 15 years. The third option also gives your nominee 10% of the sum assured and the remaining as monthly instalments over 15 years. But in the first year the monthly instalment is 0.5% of the sum assured and subsequently increases by 7.5% per annum for the next 14 years.
Mint Money take
For a 35-year-old and for a sum assured of Rs1 crore with the lump sum mode, the annual premium comes to Rs10,971 for a policy term of 25 years.
The option to break up the sum assured into periodic payouts is good, but again there are plans in the market that offer the same.
Additionally, some plans allow you to decide the percentage of lump sum benefit and periodic income.
Even the option to withdraw a percentage of the sum assured is not a unique proposition although the policy does offer a higher pay-out of up to 71%. The conversion add-on is not that appealing.
Evaluate the policy as any other term plan and then compare across products.